The Other Secret to Surviving As a Trader

Last week we discussed the secret to surviving as a trader. At the end of that post, however, I posed a question: what happens when market conditions change so much that your trading strategy and style become obsolete altogether? This post is going to take a look at what you can do to protect yourself.

Protection Strategy #1

If you were trading in the middle of the last decade, from 04 – 07, volatility was near historical lows. The trading ranges were tight, and momentum just wasn’t there as a whole. You likely got used to fading moves and playing false breakouts. Then came the housing / credit crises and things went crazy. Volatility exploded, and the whole character of the market changed. We saw a 1000 point day on the Dow. 50 and 60 point days on the S&P futures were occurring regularly. Everything was different.

So what happens if you had just spent 3 years perfecting a strategy on the Emini S&P’s? Now you didn’t just have a couple of weeks when things were out of sync. You had a couple of years. So how can you possibly survive with such a change in character (and the resulting change in what type of patterns and setups work)? Well, the only way to survive such a period as a trader is to have been proactively protecting yourself from it.

This means that as you continue honing your strategy and your style, you never get into a comfort zone and think you have it all figured out. Rather, you’re always pushing the limits of your comfort zone and learning new things. You might be a great ‘fade’ trader, buying low and selling high. But there are markets other than your own that may be momentum markets at the moment. It’s wise to dedicate time learning how to trade them- even if only on the simulator. Because if your market suddenly becomes a momentum market for 2 years, you’ll already be in position to switch your style and quickly adapt.

You may be an intraday 1 minute trader that trades momentum. But in your very same market there could be many opportunities to have a slower ‘swing’ style where you look for the larger intraday, or several day moves. It’s wise to gradually dedicate some time to learning that style. Because if your market suddenly loses momentum, you’ll be in position to switch your style and adapt.

You don’t have to learn a whole new market. Going to different time-frames on your own can provide you with practice in different styles. But sometimes a different market can be the perfect recipe to expand your trading repertoire. It’ll even help you trade your own market better when you get the smaller more regular periods when things are out of sync with your style. Now you may be adept at the different trading style needed to thrive during these periods. Or you can trade both markets and therefore diversify your strategy. This naturally makes you more patient, as you always have another market to go to when yours is acting out of whack, instead of trying to force bad trades. It’s a great way to protect yourself in the bigger picture, while simultaneously increasing your skills and profit potential.

Protection Strategy #2

The second protection strategy you can have is to learn to trade the markets based on how they really work, versus trading them on patterns and indicators that can easily become obsolete. This is a preemptive protection strategy. If you’ve checked out our market analysis and outlook videos that come out Mondays and Wednesdays on this blog, you’ll see that we’re not discussing indicators and we’re not talking about simplistic chart patterns. We’re talking about what’s happening beneath the surface. i.e. what are the other market participants likely doing, and where are the areas that they’re likely to step in and react.

We look at things from a top-down contextual view based on how the markets really work, instead of trying to find chart patterns and indicators available in every book out there. And when you base your strategy and style on the deeper fundamentals of market behavior; when you learn to truly read the markets contextually and trade based off of that, then your strategy and style will naturally be more resilient to changes in market conditions. You’ll naturally be more dynamic in your market analysis, and you’ll naturally be more flexible with your style. It comes with the territory of trading based on reading the market contextually. And you’ll be preemptively protecting yourself.

A Personal Example of How I Survived

This blog isn’t about writing posts based on theory. Everything that we share here, we’ve personally been through ourselves in our own trading journey. In 2010 the Emini S&P, my main trading vehicle, greatly changed in character from the previous two years. The ranges greatly narrowed, and the intraday trending moves decreased tremendously.

Since I’m an intraday swing trader (i.e. I make my money from the bigger trending swings during the day), the change in character made it very tough to find enough profitable trades. Within the first couple of months of the year I had realized that this wasn’t a temporary change. But because I had practiced these two protection strategies, I was able to adapt very quickly and have another great year.

While making my living from the S&P, I had been pushing myself to learn other markets, realizing that my contextual market reading skills applied to virtually any market. At that time Gold was having some great intraday trending conditions, and its trading environment was more suited to my natural style. So I started trading Gold pretty actively and ended up making 6-figures from it that year. It gave me the vast majority of my profits, and if I hadn’t had a readily adaptable style and strategy based on how all markets really work, while being willing to push myself to continually grow my repertoire, that would have been a very tough year to survive indeed.

Currently, I’m pushing myself to learn to apply the same lasting market principles to trading the S&P on a shorter intraday time-frame, so that the next time momentum dies completely for an extended period of time, I can trade it profitably while also continuing to make money from other markets.

If you’re still a developing trader seeking consistent profitability, it may be tough to learn other markets or styles. But at the very least, make sure you’re basing your strategy on lasting market principles and contextual analysis, and not some patterns and indicators that are not likely to provide you with an edge you can adapt with.

And finally, if this all sounds really tough and too demanding, sorry… I’m not going to sugar coat it for you like most others try to. This is a tough business, and I’m always going to tell it like it is. There are enough people out there trying to make it seem easy so they can profit from aspiring traders. Here, you’re only going to get the picture of reality. But like I always say, don’t let this demotivate you. Far from it. Let it excite you! It’s an awesome challenge, and those who are up to the task will reap great benefits. If you want it bad enough, you can and will do it.

Please feel free to ask any questions in the comments section below!

  • Kishan Bobba

    Ziad Masri,

    Some two years back I read Brett Steenbarger (TraderFeed) article about a certain trading aspect and your insight. That lead me to read your ‘comment’ as a reply to another trader( E-Mini Player blog). That was the single most important thing I ever read about trading. It connected the dots for me and I never looked back in trading from that moment onwards.

    Your ‘comment’ is invaluable for me thanks a lot for sharing your thoughts.
    Glad you started blogging ( The blog post you have written so far enriching me and I am looking forward for more.

    • Kishan,

      Thank you very much for your nice comment. I’m very glad to hear that my old blog comment did so much for you. I honestly didn’t expect it to have such an affect on so many traders. But I’m happy that it helped.

      And it’s good to know that the new blog posts are helping too. Many more are on the way!

      Thanks again, and I look forward to your comments and participation on this blog.

  • khushi Sharma

    The upshot is that this sort of analysis wouldn’t be agreeable in investment 101 because it doesn’t display all the facts and figures and is making an empirical inference that intuitively says thata glance at the facts and figures makes the whole issue obvious. If we had the genuine facts and figures, the antithetical answer of the careful doubter would comprise in pointing out the wide dispersion in the outcomes and the relatively high worth of some of the trials; as a outcome I would refuse to make any inference from the data.Is the conclusion based on “predictability” sound? Is the reasoning cogent? Could not such a outcome happen by chance even when no genuine differences exist? Are the empiral facts and figures too broadly disperrsed to make any shrewd inference? And how do we know whether the inference founded on predictability is correct? It is the avowed reason of statistical and economic analysis to bypass the confusion to which your intuitive study directs : how are we to know if the facts of the facts and figures actually satisfy the presuppositions?What good does it do to characterise so carefully the criteria of “predictability” , when such a criteria are only legitimate provided very unlikely situation hold? And, finally, is it equitable to depart the matter up to the “common sense ” of the book book reader, and hope that every person will have some sort of “mutual understanding” on this issue of “predictability”? The annals of economic analysis presents a cumulation of evidence against any outlook that all folks signify the same thing by “predictability” and its corollary “truth.”

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